Banks, Treasury Play Chicken on Chrysler Deal

Alternate headline: Banks, Treasury Play Chicken on Chrysler Deal
By Kevin Spak,  Newser Staff
Posted Apr 22, 2009 7:46 AM CDT
A model poses next to a Chrysler PT Cruiser on display at the Shanghai International Auto Show on its opening day, Monday, April 20, 2009 in Shanghai, China.   (AP Photo/Andy Wong)
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(Newser) – A group of big banks balked at the Treasury’s proposal that they slash 85% of Chrysler’s debt, the government’s second such request. Instead, in what the Wall Street Journal calls a “significant act of brinkmanship” as an April 30 deadline looms, the banks, including bailout recipients Citigroup, JPMorgan, Goldman Sachs, and Morgan Stanley, offered to cut just 35%—to $4.5 billion rather than $1 billion—and asked for a 40% equity stake in return.

The Treasury said it had no intention of accepting that proposal. “Our hope and expectation is that these lenders take a more constructive position in the coming days that reflects the actual situation that they and the company face,” the department said in a statement. The lenders argued that they could get 65% in bankruptcy filings, and questioned the government’s strategy of marrying Chrysler with Italy’s Fiat.